London is preparing to introduce a new 5% tourist tax on overnight stays in hotels, B&Bs and short-term rentals such as Airbnbs. The proposal follows a recommendation from a cross-party Greater London Authority oversight committee and has gathered political momentum, with Mayor Sadiq Khan expressing support while awaiting formal approval from the Government. A spokesperson for the mayor said the levy, similar to schemes in Paris, Edinburgh and New York, would boost our economy, deliver growth and help cement London’s reputation as a global tourism and business destination.
If implemented, the levy would mirror international systems that charge a percentage of the nightly rate. For London, this translates to around £10–£11.50 per night based on current average hotel and short-stay costs. The Centre for Cities estimates that London could raise up to £240 million a year from the tax, bringing the capital in line with other global cities such as New York, which collects the equivalent of £493 million annually. The tax’s introduction is expected to be enabled through the English Devolution and Community Empowerment Bill, which would allow mayors and local authorities to set their own tourist levies for the first time.
While the measure is aimed at increasing municipal revenue, its implications reach far beyond tourism. For London’s construction and property sectors (especially those involved in hotel development, refurbishment and short-let conversions) the tourist tax has the potential to quietly reshape market behaviour over the coming years.
For the hotel industry, the levy is unlikely to deter international visitors, but it may influence occupancy patterns in more price-sensitive accommodation. Budget hotels and hostels may experience softer demand, while mid-market and lifestyle-focused hotels are expected to absorb the change more easily. Any reduction in occupancy (even a marginal one) will encourage operators to review long-term strategies, with many expected to redirect capital toward building upgrades, energy-efficiency improvements and amenity enhancements to maintain rate competitiveness. The result may be a shift in investment activity, where refurbishment becomes a more attractive option than new speculative builds.
Developers analysing future hotel projects will pay closer attention to financial modelling. With a new tax affecting ADR and operating margins, lenders are likely to demand more robust viability assessments. This is especially true for schemes outside the traditional tourism core, where absorption rates and demand fundamentals are less predictable. That said, London’s status as a global tourist hub means the long-term development pipeline is expected to remain strong, though more selective.
The short-term rental market is also set to change. Applying the tax to Airbnb and serviced accommodation could accelerate the professionalisation of the sector, particularly in boroughs already tightening regulation. Landlords may increasingly rely on fully-managed serviced apartment operators, who will need to upgrade fire safety, energy performance and access provisions to remain compliant with evolving standards. For contractors specialising in retrofit, fire protection, building services upgrades and small-scale structural alterations, this shift represents a significant opportunity.
Retrofit contractors more broadly stand to benefit as hotel operators look to enhance asset value in a more competitive environment. Demand is expected to grow for improvements such as upgraded HVAC systems, LED and smart lighting, double- or triple-glazed window replacements, roof insulation, façade refurbishments and MEP system modernisation. As London approaches stricter energy performance targets in the second half of the decade, this tax may act as an additional catalyst pushing operators to accelerate planned works.
Investor sentiment, meanwhile, is unlikely to turn negative. In many global cities, tourist levies are simply part of the operating landscape, and investors prefer clear, predictable frameworks over uncertainty. The prospect of increased fiscal devolution (hinted at by the Centre for Cities) may even improve long-term confidence, as local authorities would have greater control over infrastructure investment. However, some investors will inevitably reassess risk in the budget and lower mid-market segments, which traditionally operate on narrower margins.
The timeline for implementation remains dependent on Parliament. Chancellor Rachel Reeves is expected to grant devolved powers to introduce local levies in the coming months, with Westminster, Camden, Southwark and Lambeth seen as the most likely early adopters. London’s hotel sector, having recovered strongly since 2023, now enters a period where policy, energy regulation, and evolving visitor expectations will converge to reshape development activity across the capital.
London’s proposed tourist tax ultimately represents more than a new revenue stream. For the construction sector, it signals a gradual realignment of priorities: fewer speculative hotel builds, a stronger focus on asset improvement, increased compliance requirements for short-let properties, and a growing pipeline of targeted refurbishments. As London continues to expand its tourism economy while modernising its building stock, the levy may become an important driver of how the capital’s hospitality environment and its construction industry, evolves over the next decade.
If implemented, the levy would mirror international systems that charge a percentage of the nightly rate. For London, this translates to around £10–£11.50 per night based on current average hotel and short-stay costs. The Centre for Cities estimates that London could raise up to £240 million a year from the tax, bringing the capital in line with other global cities such as New York, which collects the equivalent of £493 million annually. The tax’s introduction is expected to be enabled through the English Devolution and Community Empowerment Bill, which would allow mayors and local authorities to set their own tourist levies for the first time.
While the measure is aimed at increasing municipal revenue, its implications reach far beyond tourism. For London’s construction and property sectors (especially those involved in hotel development, refurbishment and short-let conversions) the tourist tax has the potential to quietly reshape market behaviour over the coming years.
For the hotel industry, the levy is unlikely to deter international visitors, but it may influence occupancy patterns in more price-sensitive accommodation. Budget hotels and hostels may experience softer demand, while mid-market and lifestyle-focused hotels are expected to absorb the change more easily. Any reduction in occupancy (even a marginal one) will encourage operators to review long-term strategies, with many expected to redirect capital toward building upgrades, energy-efficiency improvements and amenity enhancements to maintain rate competitiveness. The result may be a shift in investment activity, where refurbishment becomes a more attractive option than new speculative builds.
Developers analysing future hotel projects will pay closer attention to financial modelling. With a new tax affecting ADR and operating margins, lenders are likely to demand more robust viability assessments. This is especially true for schemes outside the traditional tourism core, where absorption rates and demand fundamentals are less predictable. That said, London’s status as a global tourist hub means the long-term development pipeline is expected to remain strong, though more selective.
The short-term rental market is also set to change. Applying the tax to Airbnb and serviced accommodation could accelerate the professionalisation of the sector, particularly in boroughs already tightening regulation. Landlords may increasingly rely on fully-managed serviced apartment operators, who will need to upgrade fire safety, energy performance and access provisions to remain compliant with evolving standards. For contractors specialising in retrofit, fire protection, building services upgrades and small-scale structural alterations, this shift represents a significant opportunity.
Retrofit contractors more broadly stand to benefit as hotel operators look to enhance asset value in a more competitive environment. Demand is expected to grow for improvements such as upgraded HVAC systems, LED and smart lighting, double- or triple-glazed window replacements, roof insulation, façade refurbishments and MEP system modernisation. As London approaches stricter energy performance targets in the second half of the decade, this tax may act as an additional catalyst pushing operators to accelerate planned works.
Investor sentiment, meanwhile, is unlikely to turn negative. In many global cities, tourist levies are simply part of the operating landscape, and investors prefer clear, predictable frameworks over uncertainty. The prospect of increased fiscal devolution (hinted at by the Centre for Cities) may even improve long-term confidence, as local authorities would have greater control over infrastructure investment. However, some investors will inevitably reassess risk in the budget and lower mid-market segments, which traditionally operate on narrower margins.
The timeline for implementation remains dependent on Parliament. Chancellor Rachel Reeves is expected to grant devolved powers to introduce local levies in the coming months, with Westminster, Camden, Southwark and Lambeth seen as the most likely early adopters. London’s hotel sector, having recovered strongly since 2023, now enters a period where policy, energy regulation, and evolving visitor expectations will converge to reshape development activity across the capital.
London’s proposed tourist tax ultimately represents more than a new revenue stream. For the construction sector, it signals a gradual realignment of priorities: fewer speculative hotel builds, a stronger focus on asset improvement, increased compliance requirements for short-let properties, and a growing pipeline of targeted refurbishments. As London continues to expand its tourism economy while modernising its building stock, the levy may become an important driver of how the capital’s hospitality environment and its construction industry, evolves over the next decade.
